Jim Chanos (Kynikos Associates): Short oil integrators. Specifically, short Royal Dutch Shell (RDS), doesn't like the merger with BG. Short Chevron (CVX) as well due to their liquefied natural gas (LNG) challenges. He also summed up Brazil's Petrobras (PBR) by saying they're "lying, cheating and stealing." Also check out Chanos' SALT interview we posted earlier.

Kyle Bass (Hayman Capita): Long Perrigo (PRGO). Doesn't think they get bought out by Mylan, but thinks someone else acquires them. "We're short enough pharma." Bass' separate new fund has been challenging pharma patents and says the industry is ridiculous as prices of drugs have spiraled out of control. He gave the example of Mylan's (MYL) epipen drug specifically. Says 13% of the company's revenue comes from this drug (which came off patent back in the 1950's).

John Burbank (Passport Capital): Long NCB AB, a Saudi Arabian banking play. "The banking giant you've never heard of in the country you're too scared to invest in." He says the vast majority of deposits don't pay interest due to Sharia Law so they'll be in a good position when rates rise. Harps on the fact that outsiders are going to be able to invest in Saudi and by 2017 90% of investors will own some part. "All the risks are already known in Saudi." This isn't a new theme from him as Burbank has pitched Saudi investments in recent years.

Lee Cooperman (Omega Advisors): As he has been for a while now, he again advised reducing fixed income exposure. He also said to go short on any rally if you're adventurous. His stock picks were the same as his Sohn Conference picks: ACT, AER, C, DOW, GM, GOOGL, PCLN.

George Soros' family office Soros Fund Management has filed 13G with the SEC regarding shares of Plasmatech Biopharma (PTBI). Per the filing, Soros Fund has disclosed a 5.17% ownership stake in the company with over 1.16 million shares.

This marks an increase of 916,677 shares since the end of 2014. The filing was made due to activity on April 22nd.

Per Google Finance, Plasmatech Biopharma is "formerly Access Pharmaceuticals, Inc., is a biopharmaceutical company focused on developing a range of pharmaceutical products primarily based upon nanopolymer chemistry technologies and other drug delivery technologies. The key products for the Company are MuGard, which manages oral mucositis, CobOral, a preclinical nanopolymer for oral delivery of a number of peptides and therapeutics and Cobacyte, its anti-cancer technology to protect normal tissues."

Skybridge's Alternatives Conference, otherwise known as SALT, is underway in Las Vegas. Dan Loeb of Third Point spoke last night with Anthony Scaramucci and here's a summary of his comments.

Dan Loeb's Comments at SALT Conference

- Loeb seems constructive on Japan, says the Abe administration was very encouraging when they were involved with Sony (SNE) pushing for change. Says Third Point probably exited that name "too soon" and probably left $1 billion on the table there as Japanese businesses are starting to focus on changing their ways. They're more receptive to activism/suggestions and starting to focus more on shareholder return. Thinks there will probably be more activist opportunities in the country but "they will become their own activists".

- Yum Brands (YUM) isn't really an activist play for them, it's an emerging markets opportunity. They saw a play and as the food safety issues are taken care of, there's "enormous" upside. There's basically 3 pillars to his investment here: turnaround potential (undervalued), franchising, and possible China spin-off. You can read Third Point's thesis on YUM in their Q1 letter.

- Activism can help power the 'powerless' by helping other shareholders.

- Loeb thinks markets will more likely than not be higher over the next 1-3 years from now. 2 rules: Don't fight the Fed and don't fight the 'godfather' (David Tepper).

- On Warren Buffett: "I love reading Warren Buffett's letters. I love contrasting his words with his actions ... I love his wisdom. He's a very wise guy. But I also love how he criticizes hedge funds, yet he really had the first hedge fund. He criticizes activists, yet he was the first activist."

- Also talked about how the lack of educational opportunities here in America is a big issue.

At the Skybridge Alternatives (SALT) Conference in Las Vegas, short seller Jim Chanos of Kynikos Associates sat down with Bloomberg's Stephanie Ruhle to talk about markets as well as some of his past and current short positions. He mentioned NuSkin, Tesla, Petrobras and talked about other oil plays in general.

*Update: He's now delivering his presentation at SALT: short oil integrators. One of his slides entitled "Brazil: risk masquerading as opportunity." Sums up Petrobras as: "lying, cheating, and stealing." He says he's short Royal Dutch Shell. He's also short Chevron (CVX) due to LNG problems, among other things.

Mason Morfit of activist investment firm ValueAct Capital sat down with Larry Larsen at Microsoft's Channel 9 to talk about his background, ValueAct's approach, and his thoughts on Microsoft (MSFT).

Morfit notes that ValueAct was founded with capital from the family of the founders of The Gap. And ValueAct wanted to think like an owner and own stocks for a long-time and develop relationships with the management and board to help the company grow.

MSFT is ValueAct's top holding and was worth over $3.4 billion at the end of
2014. ValueAct takes an active approach with most of their investments
and Morfit sits on the company's board. Morfit says ValueAct likes to invest in some of the world's best businesses and MSFT fits that category.

"Our perspective was that lost in this negativity around what was going on in PC's and the disruptions that were coming from mobile and cloud, is that Microsoft was much more than just a Windows or PC's company."

"I've been really happy with the progress the company's made" since ValueAct originally acquired stock in 2013.

Morfit says he's paying most attention to Office 365 (especially commercial) and subscription numbers, as well as the businesses in the servers and tools group.

Additionally, he talked about the management transition and the company's openness to accept criticism and to openly discuss ideas and to face facts whether they're good or bad.

We posted up notes from the Sohn Conference New York 2015 featuring all the big name hedge fund managers like David Tepper, David Einhorn, Bill Ackman and more. Now Bloomberg Business has posted up the full slideshow presentations from up and comers who were finalists in the Sohn Investment Idea Contest.

Sohn Investment Idea Contest Presentations 2015

The winner of the contest was Angelo Martorell of the Wharton School, who pitched long IAC Interactive (IACI). While the company owns various assets, his pitch centered around the company's online dating assets, and in particular its popular Tinder app.

Sean Murphy, Game Creek Capital: Long Grupo Televisa (TV): This is a play on cable/satellite/content in Mexico. There's potential to consolidate the cable industry and benefit from secular trends as the cable industry now in Mexico is similar to the late 1980's in the United States.

Venkata Amarthaluru, University of Pennsylvania: Long W.R. Grace (GRA): This has been somewhat of a hedge-fund-favorite and Ted Weschler of Berkshire Hathaway has been a big bull on the name dating back to when he ran his own hedge fund and before. With GRA's spinoff coming up, Venkata recommends to buy pre-spin and then sell the Construction Products division and hold the New Grace Co.

Columbia Business School is out with the latest edition of its Graham & Doddsville investment newsletter. This issue features interviews with Matthew McLennan and Kimball Brooker of First Eagle Investment Management, Josh Resnick of Jericho Capital, and Harvey Sawikin of Firebird Management.

Additionally, they talk with Eric Yip and Mark Unferth of Alder Hill Management, and Rolf Heitmeyer of Breithorn Capital.

Lastly, the new issue features student investment pitches of: long Altice, long Fiat Chrysler, long HCA, long Genuine Parts Company, and long Precision Castparts (PCP).

Per a 13D filed with the SEC, Jeffrey Smith's activist fund Starboard Value has disclosed an 8.2% ownership stake in Brink's (BCO) with 3.97 million shares.

This is a newly revealed position as they did not own any shares at the end of 2014. The filing shows Starboard was out buying BCO shares throughout March and April at prices largely between $26 and $29.

The 13D filing contains the standard activist boilerplate stating that Starboard thinks shares are an attractive investment opportunity and might engagement management in the future.

Per Google Finance, Brinks is "a provider of secure logistics and security solutions services ATM replenishment and maintenance, secure international transportation of valuables and cash management services, to financial institutions, retailers, government agencies including central banks, mints, jewelers and other commercial operations around the world."

Monday, May 4, 2015

The 2015 Sohn Investment Conference just took place in New York where hedge fund managers pitched their latest stock ideas to benefit the Sohn Foundation and pediatric cancer research.

Sohn Conference New York: 2015 Notes

- David Einhorn (Greenlight Capital): Short Pioneer Natural Resources (PXD). Compared it to St. Joe (JOE). Energy companies with negative development economics, negative on frackers in general. US production boom: Bakken, Eagle Ford, Permian. Buy the land, set up drills (expensive). Huge cumulative CAPEX, more than oil brought out. None of them generated cash flow, even when oil was high. $20B cash burn by group last year. Depletion is the "D" in EBITDAX. It's not really growth, because once you get the oil out it's gone. CAPEX has been 75% of revenue over last 5 years. Not natural gas frackers, they are fine. PXD: Well located, well run, Permian assets mainly. #2 pure play behind EOG. $26B market cap, EV $27B, may earn $1.50 per share next year. Spent $19B in CAPEX last few years - funded partially by capital raises. Proved reserves have been flat or down despite huge CAPEX. $36 rev/bbl, if you take out the $28 CAPEX, they lose $12/bbl. Negative NPV if you include time cost of money. If you had used $68 price of oil, reserves are only worth $9/share. He says if you cut their costs, it's $22/share. Value creation per $ spent is only 0.74. You can view Einhorn's slideshow presentation on PXD here. For even more from him, we recently posted up Greenlight Capital's Q1 letter as well.

- Barry Rosenstein(JANA Partners): Walgreens (WBA) and Qualcomm (QCOM). WBA an example where activism worked. 12 layers of management between CEO and store managers vs. 5 at CVS. Turnaround began with deal to buy Alliance Boots. Then they got involved (cost cutting, tax inversion talks, but they didn't actually do the latter). QCOM: Bloated costs, board with no owner orientation, family in positions, issuing a lot of stock. He tries to downplay the breakup idea (tech analysts say it can't be done). He says they need to return capital; doing a $15B repurchase, which is 13% of market cap (says they have 30 per share in cash). He wants to cut/change management compensation, reduce board size, evaluate corporate structure (break off the chipset business). Smartphone market is large and growing, IP model approved by China (although many OEMs still not paying royalties). For more from this manager, we recently posted Rosenstein's appearance on Wall Street Week.

- Keith Meister(Corvex Capital): Long Yum Brands (YUM). 1/3 in China, outside of that it's almost all franchise, inside it's owned. KFC, Taco Bell, Pizza Hut restaurants. Says China problems are being fixed. Top 5 holder of the stock. Says franchise mix leads to more leverage, better multiples. Simply put it's a bet on recovery in China (previous food issues at KFC). SSS getting better, but still negative. 51% of those surveyed in China said KFC was their favorite place to eat. Today 0.97 of $2.09 in earnings is China. If they go back to '12 rev/unit, it would be over $3 EPS from China alone in 2017, that would be about $6 EPS in 207, with stock at $60, paying only about 10x now. China business is very different - should spin it off. Have it enter a franchise business deal with the main "FranchiseCo." Says it unlocks $16/share of value. ChinaCo becomes "more Chinese" which helps in China. Valuation: 50-90% upside. $130-16 PT. Franchise co worth $88 in 2017, ChinaCo, $41-72 depending on how well it recovers from the food scandals. Dan Loeb's Third Point also laid out the YUM investment thesis its Q1 letter.

- Larry Robbins(Glenview Capital): Long Abbvie (ABBV) & Brookdale Senior Living (BKD). Money is cheap now. BB junk bond 10-12 year debt for less than 4% after tax. Own over-capitalized businesses and have them borrow money. ABBV: Old school pharma to new. Spending 16% of revenue on R&D. Structural acquirers and owner-activists pressure them on both sides. Why ABBV? 1. Growth through 2020, 2. Numerous areas of upside optionality, 3. Excess cash they could use for acquisitions. Says Humira grows through 2017, acknowledges the debate about patents expiration. Biosimilars are not exact copies. 6 key upside optionalities: Pipeline is underappreciated, making biosimilars is 1000x harder than generics (state by state regulation, difficult process, etc), Humira patent protection possible, could change formulation of Humira to extend economics, look at Evercore ISI work, paying 30% repatriation tax plus dividend taxes in US "don't give it to us, keep it and do something productive with it", says they could buy 30% of shares with leverage, adding $15 to share price, also could be more M&A "they could be the pill swallowed, or be the Pacman." Almost a double from here. BKD: Bet on the aging population. By far the largest and can sell ancillary services in same facilities. Also real estate options. You can also read Robbins' thesis on other stocks in Glenview's recent letter.

- Lee Cooperman(Omega Advisors): 8 stock picks (ACT, AER, C, DOW, GOOGL, GM, PCLN, GULTU). Generally bullish, 7-9% return on market, appropriately valued, negative view of fixed income. 35% of stocks in SPX yield more than bonds. Inflation is not bad for stocks - it raises their nominal revenue. Bear markets occur for one of four reasons: oncoming recession, overvaluation, geopolitical event occurs, hostile Fed. Nothing today indicates oncoming recession. He says he doesn't understand the consternation about the Fed hiking rates. On average, the stock market raised 30 months after the first hike, the shortest was 10 months. On average, a year later, market is up 9.5% the year after a rate hike.

- Mala Gaonkar(Lone Pine Capital): Long Microsoft (MSFT). Value hidden in legacy tech. 1.5B installed office users globally, only 250M actually pay for it. New stronger management (Satya Nadella). Built the cloud platform Azure. Works with 3rd party software, no more "saving Windows first." Solid mid-to-high single digit revenue growth. Most controversial aspect of this pitch. Fear is consumer Windows will die, but it is only 5% of revenue. Enterprise software is 17%, and more more sticky. Mainframes still a $5bn annual business and they are using MSFT software. "Price elastic market" very stick in ADBE, Autodesk as well. Cloud is 10% now, growing faster than the rest of the business. Office 365 more than doubles users. Reduces piracy. Operating cost cuts. Been no restructuring since dawn of PC age. Spend $1bn marketing consumer Windows. Cloud shift cuts costs - no commissions to pay resellers. Capital return, has way too much cash. Raised share buybacks, but should be much higher. Could earn 3.89 next year, fro 3.04 this year.

- Jeff Gundlach(DoubleLine Capital): Puerto Rican Muni Bonds. They have priced in a lot of problems. Triple tax free yield of 11% for 8s2030 at about 78 of face. Says they may go lower first. "You're supposed to buy them at 78." Also talked about negative interest rates and said to borrow infinite amounts at that level. Fed talk is just noise. 2 year Treasury bottomed 4 years ago - you can see it on the chart. Same with 10 year - 2012 was the low. Very bearish on junk bonds, says no one alive in the room has lived through a secular rise in high yield bond yields. Junk bonds do NOT do well when the Fed starts hiking rates. A couple of years of runway. For more from Gundlach, watch his appearance on Wall Street Week.

- David Tepper(Appaloosa Management): Thoughts on markets. Also said junk bonds are not cheap. "Something has to give." "Either stocks have to go up a hell of a lot, or treasuries will go down a hell of a lot." Could 22.78 P/E vs average now 17x on stocks. Implies 30% move if treasuries don't move. Monetization of debt in China. "Don't fight the Fed; don't fight 4 feds." (US, ECB, Japan, China). Implies Hong Kong stocks are cheap, 10x P/E. "Maybe the big banks aren't that bad if you look at them." Don't short options that lengthen (they become more valuable). This is why it's risky to short China. What happens when China does first cut? Stocks start going up. Reinflation of their economy. Says terrible environment for bonds. "This monetary policy has worked for 5 years." Now all 4 central banks are going one way. "Good luck" with shorting.

- Bill Ackman(Pershing Square): Long Jarden (JAH), Platform Specialty Products (PAH), and Valeant Pharmaceuticals (VRX). JAH: 45x return in 14 years, constantly undervalued over the years. Always valued on next year's EPS. PAH: A shell they funded. NOMHF: Nomad, another shell/SPAC. Flat at cash value for a year, then bought Iglo and the stock went up 80%. Why is the market mis-valuing these companies? He calls them "Platform companies" not just on multiples based on comaprables. Others as examples: Danaher, Liberty Media, AB InBev, Transdigm. Key is to find the right management teams that do good acquisitions. VRX: Paid $196/share, 20m shares, 20% of his capital. Tax-advantaged structure. Units have autonomy. Drawback is there is a lot of competition in acquisitions. Gives the example of the Bausch & Lomb acquisition. Value of business is correlated with ability to buy companies and integrate them, take synergies. PT $332, from $223. Based on organic growth and small deals. Compares it to a Berkshire Hathaway in the making. For more from Ackman, check out Pershing Square's presentation from its European investor meeting.

- Ian Bremmer(Eurasia Group): Geopolitical analyst. Oil production in the US has reduced our willingness to engage in fights, especially in the Middle East. "Weaponization of Finance" to use finance to influence behavior. US may have realized that they spent so much in Iraq and the country still fell apart. "We will see $100 oil no time soon." "Likely to see an Iranian deal, which will be another 1.2m barrels a day." Putin is in a corner. More Russian cyber attacks against the US. China - the rise is important. They are not confronting the US militarily. Economically China does want to challenge US hegemony. "Best money the Americans ever spent was the 4% of GDP on the Marshall Plan. It paid off for decades." The only country in the world with a cohesive global strategy is not us, it is China. China does not want to occupy countries. Some countries will be hedging, and ally with China economically. Including Germany, South Korea, etc. For the next 5-10 years, China is more stable than you think. They will be the world's largest economy, but they will be totalitarian still, and will have a lot of world influence.

- Jay Walker(Founder of Priceline): Black Swan events more likely than ever. A few people with a few million dollars could wipe out billions in market cap. "Bioweapons plus drones plus social media." Risk of economic collapse.

- Sohn Investment Contest Winner(Angelo Martorell, Wharton Student): Long IAC Interactive (IACI). Owns March.com/Cupid/Tinder, Ask.com, About.com, Vimeo, HomeAdvisor. $5.9bn EV. Uses sum of the parts and says market not giving value for Tinder, because there is no revenue, profits. IACI has all the best dating properties. "Facebook of dating." If Tinder was private it would be more than the market cap of entire IACI. Says 1/4 of millenials won't marry. "Network of effect." Tinder premium will give unlimited right swipes, 2.5% of MAUs will pay for it. $10/month. Online dating makes it very easy to have an affair. Tinder will crush Ashley Madison. You can have dates in places you travel. Cross-selling - some can go from Match to Tinder and vice versa. Users spend 77 minutes/day on Tinder versus 40 minutes on Facebook. Also it's fully integrated with FB. Valuation? Says you get Tinder for free with current stock price.

We've posted up notes from the 2015 Sohn Investment Conference that just ended in New York. David Einhorn of Greenlight Capital pitched a short of Pioneer Natural Resources (PXD) and embedded below is his full slideshow presentation.

Anthony Scaramucci's rebooted show Wall Street Week just finished its third episode and this week they had on activist investor Carl Icahn.

He talked about the markets and said "I'm very concerned about the market. You have a situation where this market keeps going up and up with zero interest rates and that's what's really pushing it. And yet, a lot of the economic news isn't all that good and also, perhaps more importantly, earnings aren't good."

"We're very hedged." It sounds like he's using CDS and derivatives to hedge his portfolio.

Icahn said he's even more worried about something else: "What's even more dangerous than the actual stock market is the high yield market. I think it's ridiculously high."

He then went to talk about activism and how he's been involved over the years.

And lastly, he talked about his investment in Apple (AAPL) and how it's almost doubled since he first got involved but he hasn't sold a share (and he's actually bought more on the way up).

Embedded below is the video of Carl Icahn's appearance on Wall Street Week:

At the Milken Institute conference recently, numerous prominent hedge fund managers gathered on a panel entitled: The Intangibles of Building a Great Hedge Fund: People as an Asset Class.

Ken Griffin of Citadel, Alex Klabin of Senator Investment Group, Jason Karp of Tourbillon Capital, and Gideon Berger of Blackstone all took part in the discussion on investing and the hedge fund industry.

Milken Institute Panel: Intangibles of Building a Great Hedge Fund

Here are some select quotes from the panel and the full video is below:

Alex Klabin on what makes a great investor: "Great investors, in my view, are able to distill complicated ideas / complicated situations down to the one or two things that really matter. And then make an analogy in their head to distill what the core of the investment is."

Ken Griffin on science versus art in investing: "In every one of our businesses, there's a science and there's an art. The science is usually caps in the process and hard work that goes behind driving an investment decision. We'll do thousands of meetings a year, it's as unglamorous as it can be. But you use it to assimilate information about how a company's progressing, how a business is unfolding or developing. And if you're really good, you have an idea of what guidance is going to look like, what the quarter's going to look like. The art comes down to not how well you can do all that work, but how well you can differentiate your idea from what other people perceive reality to be. And you're successful in this business when you have a differentiated point of view and the market agrees with you when the information that you have becomes known by all ... You need to have the ability to understand: how will other investors respond to this information when it becomes known. That's the art in the business, and it's a tough art."

Jason Karp on people as an asset class: "In our industry, people spend more time on stocks than they do on people. In my 17 years, what I've discovered is that people, if you train them properly, if you invest in them properly, have more duration, yield, and optionality than any stock I've ever purchased."

Jason Karp on what he looks for in hiring: "One of the things
that we screen for is a variable called openness to change. And it's
the single most important variable that we screen for. It's basically
how well you're able to quickly change your mind when you're presented
with conflicting information."

Gideon Berger on what he looks for when investing in managers: "Some people are trying to become lifestyle hedge fund managers, and some people are just trying to get rich, and some people love investing. What are you actually trying to do? The two things that we focus on the most: 1. the commitment to building the organization and 2. character that suggests we think they can withstand adversity."

Gideon Berger on what they do before investing: "What we try very hard to do is be very explicit and write down our investment thesis going in. Why are we making this investment? Where do we think the edge or opportunity is coming from? If the thesis is playing out, but the investment isn't playing out, that's an opportunity to add to the position. But if the thesis isn't playing out but you're making money, that's good luck. Separating why you're making an investment versus results is very important."

Thanks to Grizzly Rock Capital for compiling and sharing the following notes from the Markel (MKL) meeting during the Berkshire Hathaway weekend.

2015 Markel Meeting Notes During Berkshire Weekend

Having LT shareholder base is "critical to what Markel does"

Culture!

Organized in 1930 as small insurance agency. Steve joined company 40 years ago in 1975. Company was still a small insurance broker.

Went public in 1986. Raised $5 million and market cap was $35ish million dollars

Worked with cousins on growing the business. Wanted the credibility of being a public company. Recruit and develop talented associates around core 4 principles

Today, over last 28 or 29 years Markel developed a number of businesses and bought many others. Market cap is $10 billion

Spending time over the past few years making sure the market is "built to last" and managers are in place to continue the success. World of insurance is not limited and Markel should be able to continue to take advantage of opportunities.

Questions & Answers
How have you implemented the "Markel Style"? How do you react with people don't fit?

Markel style is attempt to describe culture and values.

Every Company has a culture – whether they say it or not.

Notion of teamwork and joy of building the company. Some people are just wired to like that.

Needs all associates to have the same culture to grow. Mathematically harder with scale.

Other side to story is entropy. “Becomes a flywheel”

Have formal HR practices – if the person is not “Markel style” they won’t be there long term

“Believing in teamwork is more important than the individual”

Disdain for bureaucracy

Having a focus on shareholders

Being interested in sharing the results. Meritocracy

If someone is more interested in building net income than net worth, that isn’t the Markel Style

Key when doing an acquisition is figuring out who the people who don’t fit and “getting them off the books” (in a kind way)

If growth is strong, maintaining the "fly wheel of Markel style" does get harder with scale

Bc of success, lot of smiling faces and proud people

"Don't want to believe our own BS"

Need to have the most up-to-date information technology and working hard to make that happen

One thing to focus on insurance side is distribution

CFO answer: (1) liquidity - very conservative with regard to liquidity. Have to keep an eye on liquidity

Success can make it easy to say no to new risk even if the pricing is good

Success that breeds complacence is a dangerous thing

3 people that Tom Gayner has tell him if he is out of line: Susan Gayner his wife, COO of Markel Ventures Mike Keegan, and Steve Markel.

Participated in the Fairfax India raise. What are the thoughts around investing in a "cash box"?

Steve Markel - #1 reason is that they have a high degree of confidence in the management of the venture and track record of investing in India profitably.

Fairfax India is a handful of Indian companies yet will be 8 or 10 public or private positions in Indian companies.

Fund hasn't made any investments. Market price moved from $10 to $12 but no change in underlying economics.

Markel was looking to get into India yet India is somewhat restrictive in terms of allowing foreign control investors

Markel invested $40 million so modest relative to the size of Fairfax India as well as Markel.

Expand on scalability?

Working on moving from successful boutique to a strong global entity

Focus on systems implementation and culture

"Too hard on the relationships to do these things more often than 10 years!"

With Alterra, they went full integration day 1. Some previous acquisitions they were less quick on removing people who wouldn't be successful in the Markel culture. Biggest thing was that Alterra was a quality organization.

Incentive compensation? Why is your 12.0% return hurdle for incentive compensation at the current level?

In an almost ZIRP environment, a double digit rate would be significant.

On the investment side, the insurance business needs liquidity to pay claims and needs highly liquid securities to do that

Need to focus on reducing the combined ratio down to ensure profit

Yet Markel can hold other securities which should help returns

Biggest focus is on reducing expense ratio including initiatives on getting the expense ratio down. Have plans over a few years to do just that.

Amount of equity securities?

Markel would hold up to 80% of book capital in equity securities

Number is probably in the "high 50%s" range currently as Markel has been bying equities weekly since the Great Recession

Munger talks about focus and concentration. However, top 20 positions account for 70% of portfolio. Reason for 120 companies is that Tom Gayner wants a bench.

Example is Amazon which Gayner bought and then sold quickly

Number 1 reason Gayner likes Brookfield Asset Management (BAM) is that the mgmt team have boots on the ground and go where the opportunities are

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